Anti-tax avoidance measures come into force

A new raft of anti-tax avoidance measures came into force across the EU yesterday, as part of an ongoing effort to combat corporate abuse of tax systems.

The Anti-Tax Avoidance Directive, first proposed in 2016, features rules based on global standards laid out by the Organisation for Economic Co-operation and Development (OECD) and aims to prevent corporate profits from being siphoned out of Member States to avoid tax. The new anti-tax avoidance measures place the EU at the global forefront of political and economic efforts to combat corporate tax avoidance.

Controlled Foreign Company rule – discourages multinational companies from shifting profits from a parent company based in a highly taxed country to countries with lower business tax rates;

Interest Limitation – limits the amount of net interest a corporation can deduct from its net income when declaring profits in highly taxed countries: previously, multinational companies were able to coordinate inter-company loans to concentrate their debts in countries with high tax rates and claim the interest on the loans as a tax deduction; and

General Anti-Abuse Rule – in conjunction with the other more specific anti-tax avoidance measures, this rule aims to tackle generally abusive or exploitative tax arrangements where other measures do not apply.

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: “The Commission has fought consistently and for a long time against aggressive tax planning. The battle is not yet won, but this marks a very important step in our fight against those who try to take advantage of loopholes in the tax systems of our Member States to avoid billions of euros in tax.”

Further anti-tax avoidance measures, including rules to prevent companies from exploiting discrepancies in tax systems between two Member States and exit taxation rules, which ensure gains on intangible assets such as intellectual property which are moved from a Member State’s territory become taxable in that country, will come into force on 1 January 2020.